Farmers who supply Tesco’s Sustainable Dairy Group (TSDG) will see a milk price increase of nearly 20% from May amid "challenging market conditions".
The group, set up in 2007 and now consisting of 520 farmers, will see their milk price jump from 34.16p per litre to 40.84p per litre in May.
TSDG farmers will also see an interim price rise in April to address the current unprecedented levels of on-farm inflation, Tesco said.
The price the retailer pays its farmers for milk is independently set on a quarterly basis and takes into account inputs such as feed, fuel and fertiliser.
Dominic Morrey, Tesco commercial director for fresh food, said the dairy sector was currently in a challenging time.
"We’re pleased to be offering our dairy farmers a significant increase in the price we pay for our fresh milk.
"Our farmers work incredibly hard... we recognise the critical role they are already playing in helping to transform the food industry, as we tackle issues such as climate change and food security.
“TSDG embodies our partnership approach with our dairy farmers and has enabled us to introduce innovations such as carbon foot-printing and biodiversity measures, as well guaranteeing quality British milk for our customers."
Bill Higgins, TSDG Committee Chairman representing Muller, said dairy farmers had seen 'extreme volatility' in recent months.
"Tesco has stepped forward to help us adapt the TSDG model to better reflect and support us through these unprecedented times."
It comes after dairy processor Muller this week announced a milk price increase of 3.5p per litre from May.
Rob Hutchison, chief operating officer at Müller Milk & Ingredients, said the milk price came amid 'unprecedented' increases in costs.
"We will continue to do everything that we can to support farmers who supply us," he added.